Nortel execs to repay big bonuses

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Nortel Networks issued its much-delayed audited financial
statements for 2001 to 2003 on Tuesday and said an internal inquiry
showed that executives had manipulated the initial results to
obtain bonuses.

In an unusual development, Nortel, the biggest maker of
telecommunications equipment in North America, said that a dozen
current executives who played no part in the manipulation would
repay $US8.6 million ($11.3 million) in bonuses voluntarily over
three years. They will also give up the last two instalments of a
restricted stock payout dating back to 2003.

Brian Foley, an expert in executive compensation, said he could
not recall an instance of executives returning bonuses because the
payouts were based on financial results later found to have been
misstated.

But he said some companies had begun considering adding
provisions in executives' compensation agreements requiring
repayment under such circumstances.

"You can imagine the appetite in the executive suite to having
such a provision put in," he said. "I'd question why you need a
provision to go after the money. In the right circumstances you
ought to be able to go back for it anyway.

"But you have to have a board that is willing to step up to the
table and say, 'You didn't make it, I want it back'."

The Sarbanes-Oxley Act in the US addresses the matter, stating
that chief executives and chief financial officers may have to
forfeit bonuses when they have certified financial results and
willful misconduct was involved.

But it says nothing about other executives whose pay is also
based on meeting financial goals.

The Nortel announcement comes at a time when current and former
executives at several companies have been under pressure to return
bonus pay.

The Office of Federal Housing Enterprise Oversight is seeking to
force a repayment of bonuses by two top executives ousted from
Fannie Mae as a result of its accounting scandal.

In another case, shareholder pressure caused the FPL Group to
announce that it was recouping $US22.5 million in bonuses given to
eight executives as part of a failed merger agreement.

Nortel has been seeking the return of an additional $US10
million in bonuses from Frank Dunn, who was fired as chief
executive, and other executives who were dismissed.

In a conference call with reporters, William Owens, who is now
the chief executive, said that Nortel had not yet begun legal
action against those people but the company would do so if
necessary.

The financial review by Nortel, which has cost $US115 million to
date, found that the company's 2003 earnings were $US434 million,
down from the $US732 million reported originally.

While that disclosure, as well as adjustments to revenue and
earnings in the previous two years, is a step towards putting
Nortel's accounting scandal in the past, its current financial
status is still unclear.

Nortel has missed several deadlines for its 2004 results and Mr
Owens promised on Tuesday only to make results for the first half
of the year available by the end of this month.

"This was largely historical," Stephen Kamman, an analyst with
CIBC World Markets, said of Tuesday's release. "We need to know how
the business is operating now. You should not expect a major
reaction from investors because uncertainty is going to be with
this company for a while."